ASC Market Activity: 2 Key Trends

Healthcare is changing, and along with it the ambulatory surgery center industry. Here are two key trends to watch as industry continues to mature.

Question: Who are the most often seen ASC buyers?

Kyle Tormoehlen, ASA, MBA, co-owner, Healthcare Transaction Advisors: Strategic buyers are the most active within the ASC market. These buyers seek businesses that are quickly integrated with their existing core operations. Long-term value is created for buyers through synergies generated by adding a complementary ASC business to the buyer's existing organization.

There are two main types of strategic buyers for ASCs: ASC management companies and hospitals/health systems. ASC management companies seek to unlock value through their knowledge and expertise of day-to-day ASC operations. An ASC management company may observe such opportunities as reducing labor costs and operating expenses, negotiating more favorable payer contracts and/or adding new physician partners through continued ownership syndication efforts. Additionally, the overall value of the management company is likely to rise as a result of consolidating a new center into its existing portfolio of surgery centers.

The synergies for a hospital or health system looking to acquire an ASC will be different than those synergies for ASC management companies. Hospitals and health systems seek a high quality, low cost alternative for outpatient surgery. This strategy is particularly prudent as reimbursement shifts to "value-based" and Medicare and commercial payers begin to incentivize the reduction of unnecessary costs through shared savings programs. Hospitals may also pursue an ASC acquisition as an alignment strategy with the center's existing independent physician owners.

Finally, when acquiring a 100 percent interest in an ASC, a hospital buyer may elect to convert the freestanding ASC into a hospital outpatient department to take advantage of higher reimbursement rates. However, the OIG has recently recommended that HOPD rates are reduced to equal ASC rates for certain low risk procedures. While there are no HOPD reimbursement changes imminent, I would not recommend an acquisition strategy based solely on rate differential as there are material risks related to long term sustainability.

Question: Will ASCs and ASC companies employ physicians?

KT: Many states prohibit the "corporate practice of medicine" which would include ASCs directly employing physicians. Essentially a corporation cannot practice medicine or employ a physician for the purpose of providing professional medical services as such an arrangement may affect the physician-patient relationship and a physician's medical judgment. It is my understanding that these laws vary by state; I would recommend contacting a qualified healthcare attorney for an expert opinion regarding the requirements and potential risks.

While an ASC is unlikely to employ physicians, certain ASC management companies have begun to expand their services to include practice management, strategy and other physician-focused services. An example would be USPI’s Physicians Strategy Group providing strategic resources and services specifically to physicians and physician practices within the USPI network. In addition, AmSurg has agreed to buy Sheridan Healthcare for $2.35 billion – acquiring the country's biggest provider of anesthesia services.

I see the strategic benefit for ASC management companies seeking to complement their core ASC business by partnering with physicians on the professional side. This strategy not only diversifies their services but serves to strengthen their relationships with physicians in the surgery (technical) component of the business.